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Note 2 - Acquisitions | 9 Months Ended
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Sep. 30, 2023
Notes to Financial Statements |
Mergers, Acquisitions and Dispositions Disclosures [Text Block] | Note 2 - Acquisitions Business Combinations The Dubin Group, Inc., and Dubin Workforce Solutions On February 21, 2022 we completed our acquisition of the staffing operations of The Dubin Group, Inc., and Dubin Workforce Solutions, Inc. (collectively “Dubin”) in accordance with the terms of an Asset Purchase Agreement dated January 19, 2022 for approximately $2.5 million, inclusive of a prescribed amount of working capital. Dubin provides executive placement services and commercial staffing in the Philadelphia metro area. The acquisition of Dubin will help expedite growth into a new staffing vertical, expand our national footprint, and grow our franchise base. The fair values of the assets acquired were determined based on information available to us. From the date of acquisition through December 31, 2022, the fair value of assets acquired were adjusted in conjunction with a third-party valuation. These adjustments included an increase in customer relationships of approximately $972 thousand, a decrease in customer lists of approximately $772 thousand, and the recognition of approximately $200 thousand of goodwill. The following table summarizes the revised values of the identifiable assets acquired as of the acquisition date (in thousands):
Cash consideration |  | $ | 2,100 |
Note payable & net working capital payable |  |  | 362 |
Total consideration |  | $ | 2,462 |
Customer relationships |  | $ | 1,600 |
Customer lists |  |  | 200 |
Accounts receivable |  |  | 462 |
Goodwill |  |  | 200 |
Purchase price allocation |  | $ | 2,462 |
Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new customers, and future cash flows after the acquisition of Dubin. Goodwill is deductible for income tax purposes. The following table presents unaudited pro forma information (in thousands, except per share data) assuming (a) the acquisition of Dubin had occurred on January 1, 2021, (b) all of Dubin’s operations had been converted to franchises on such date, and (c) none of the other acquisitions discussed in this Note 2 had occurred. The unaudited pro forma information is not necessarily indicative of the results of operations that would have been achieved if the acquisition had in fact taken place on that date. Franchise royalties attributable to the acquiree of approximately $31 thousand and approximately $56 thousand are included in our consolidated statement of income for the three months ended September 30, 2023, and September 30, 2022, respectively, and approximately $80 thousand and approximately $107 thousand are included in our consolidated statement of income for the nine months ended September 30, 2023, and September 30, 2022, respectively.
|  | Three months ended |  |  | Nine months ended |
|  | September 30, 2023 (Actual) |  |  | September 30, 2022 |  |  | September 30, 2023 (Actual) |  |  | September 30, 2022 |
Total revenue |  | $ | 9,271 |  |  | $ | 9,361 |  |  | $ | 28,118 |  |  | $ | 27,146 |
Net income |  |  | 1,483 |  |  |  | 4,246 |  |  |  | 6,120 |  |  |  | 9,712 |
Basic earnings per share |  | $ | 0.11 |  |  | $ | 0.31 |  |  | $ | 0.45 |  |  | $ | 0.71 |
Basic weighted average shares outstanding |  |  | 13,751 |  |  |  | 13,610 |  |  |  | 13,709 |  |  |  | 13,598 |
Diluted earnings per share |  | $ | 0.11 |  |  | $ | 0.31 |  |  | $ | 0.45 |  |  | $ | 0.71 |
Diluted weighted average shares outstanding |  |  | 13,820 |  |  |  | 13,677 |  |  |  | 13,777 |  |  |  | 13,688 |
These calculations reflect increased amortization expense, increased payroll expense, increased SG&A expense, the elimination of gains associated with the transaction, and the consequential tax effects that would have resulted had the acquisition closed on January 1, 2021. In connection with the acquisition, we divided Dubin into separate businesses and sold certain assets related to the operations of one of the acquired locations. In connection with their purchase, the buyers executed franchise agreements with us and became franchisees. The aggregate sale price for the operating assets was $350 thousand. In conjunction with the sale of assets acquired in this transaction, we recognized a loss of approximately $478 thousand during the three months ended March 31, 2022. Subsequently, the fair value of assets acquired were adjusted in conjunction with a third-party valuation and the net working capital reconciliation. These adjustments included a decrease in the loss of approximately $628 thousand, which is reflected on the line item, "Other miscellaneous income (expense)," in our consolidated statement of income for the year ended December 31, 2022 resulting in a net recognized gain of approximately $150 thousand. The remaining assets related to the operations of the other acquired locations have not been sold and as of December 31, 2022 are classified as held-for-sale and the operating results are reported as “Income from discontinued operations, net of tax.” We are actively working to sell these assets. In the meantime, we operate the Philadelphia location as company-owned. Temporary Alternatives On January 24, 2022, we completed our acquisition of certain assets of Temporary Alternatives in accordance with the terms of an Asset Purchase Agreement dated January 10, 2022, including three locations in West Texas and New Mexico for $7.0 million, inclusive of a prescribed amount of net working capital. Temporary Alternatives is a staffing division of dmDickason Personnel Services, a family-owned company based in El Paso, TX. The acquisition of Temporary Alternatives will expand our national footprint into West Texas and grow our franchise base. The fair values of the assets acquired were determined based on information available to us. From the date of acquisition through September 30, 2023, the fair value of assets acquired were adjusted in conjunction with a third-party valuation and the net working capital reconciliation. These adjustments included a decrease in customer lists of approximately $375 thousand, a decrease in accounts receivable of approximately $3 thousand, and the recognition of approximately $375 thousand of goodwill. The following table summarizes the revised values of the identifiable assets acquired as of the acquisition date (in thousands).
Cash consideration |  | $ | 6,707 |
Net working capital payable |  |  | 336 |
Total consideration |  | $ | 7,043 |
Customer lists |  | $ | 4,000 |
Accounts receivable |  |  | 2,668 |
Goodwill |  |  | 375 |
Purchase price allocation |  | $ | 7,043 |
Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new customers, and future cash flows after the acquisition of Temporary Alternatives. Goodwill is deductible for income tax purposes. The following table presents unaudited pro forma information (in thousands, except per share data) assuming (a) the acquisition of Temporary Alternatives had occurred on January 1, 2021, (b) all of Temporary Alternative’s operations had been converted to franchises on such date, and (c) none of the other acquisitions discussed in this Note 2 had occurred. The unaudited pro forma information is not necessarily indicative of the results of operations that would have been achieved if the acquisition had in fact taken place on that date. Franchise royalties attributable to the acquiree of approximately $119 thousand and approximately $72 thousand are included in our consolidated statement of income for the three months ended September 30, 2023, and September 30, 2022, respectively, and approximately $388 thousand and approximately $252 thousand are included in our consolidated statement of income for the nine months ended September 30, 2023, and September 30, 2022, respectively.
|  | Three months ended |  |  | Nine months ended |
|  | September 30, 2023 (Actual) |  |  | September 30, 2022 |  |  | September 30, 2023 (Actual) |  |  | September 30, 2022 |
Total revenue |  | $ | 9,271 |  |  | $ | 9,361 |  |  | $ | 28,118 |  |  | $ | 26,940 |
Net income |  |  | 1,483 |  |  |  | 4,246 |  |  |  | 6,120 |  |  |  | 10,595 |
Basic earnings per share |  | $ | 0.11 |  |  | $ | 0.31 |  |  | $ | 0.45 |  |  | $ | 0.78 |
Basic weighted average shares outstanding |  |  | 13,751 |  |  |  | 13,610 |  |  |  | 13,709 |  |  |  | 13,598 |
Diluted earnings per share |  | $ | 0.11 |  |  | $ | 0.31 |  |  | $ | 0.45 |  |  | $ | 0.78 |
Diluted weighted average shares outstanding |  |  | 13,820 |  |  |  | 13,677 |  |  |  | 13,777 |  |  |  | 13,688 |
These calculations reflect increased amortization expense, increased SG&A expense, the elimination of losses associated with the transaction, and the consequential tax effects that would have resulted had the acquisition closed on January 1, 2021. In connection with the acquisition, we sold certain assets related to the operations of the acquired locations in 2022. In connection with their purchase, the buyers executed franchise agreements with us and became franchisees. The aggregate sale price for the operating assets was approximately $2.9 million. In conjunction with the sale of assets acquired in this transaction, we recognized a loss of approximately $1.5 million which is reflected on the line item, "Other miscellaneous income (expense)," in our consolidated statement of income. The franchisee that purchased these assets is a related party. See Note 3 - Related Party Transactions for more information regarding the Worlds Franchisees. Northbound Executive Search On February 28, 2022 we completed our acquisition of certain assets of Northbound Executive Search, LTD (“Northbound”) in accordance with the terms of an Asset Purchase Agreement dated January 25, 2022, for approximately $11.4 million, inclusive of a $1.5 million note payable and a prescribed amount of working capital. Northbound provides executive placement and short-term consultant services primarily to blue chip clients in the financial services industry. The acquisition of Northbound will help expedite growth into a new staffing vertical, expand our national footprint, and grow our franchise base. The fair values of the assets acquired and the liabilities assumed were determined based on information available to us. From the date of acquisition through September 30, 2023, the fair value of assets acquired and liabilities assumed were adjusted in conjunction with a third-party valuation and the net working capital reconciliation. These adjustments included a decrease in customer relationships of approximately $389 thousand, a decrease in trade name of approximately $111 thousand, an increase in accounts receivable of approximately $363 thousand, a decrease in other current assets of approximately $34 thousand, an increase in other current liabilities of approximately $64 thousand, and the recognition of approximately $500 thousand of goodwill. The following table summarizes the revised values of the identifiable assets acquired and liabilities assumed as of the acquisition date (in thousands):
Cash consideration |  | $ | 9,600 |
Net working capital payable |  |  | 328 |
Note payable |  |  | 1,500 |
Total consideration |  | $ | 11,428 |
Customer relationships |  | $ | 7,700 |
Trade name |  |  | 1,400 |
Accounts receivable |  |  | 3,386 |
Other current assets |  |  | 94 |
Goodwill |  |  | 500 |
Current liabilities assumed |  |  | (1,652 | )
Purchase price allocation |  | $ | 11,428 |
Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new customers, and future cash flows after the acquisition of Northbound. Goodwill is deductible for income tax purposes. The following table presents unaudited pro forma information (in thousands, except per share data) assuming (a) the acquisition of Northbound had occurred on January 1, 2021, (b) all of Northbound's operations had been converted to franchises on such date, and (c) none of the other acquisitions discussed in this Note 2 had occurred. The unaudited pro forma information is not necessarily indicative of the results of operations that would have been achieved if the acquisition had in fact taken place on that date. Franchise royalties attributable to the acquiree of approximately $270 thousand and approximately $286 thousand are included in our consolidated statement of income for the three months ended September 30, 2023, and September 30, 2022, respectively and approximately $789 thousand and approximately $717 thousand are included in our consolidated statement of income for the nine months ended September 30, 2023, and September 30, 2022, respectively.
|  | Three months ended |  |  | Nine months ended |
|  | September 30, 2023 (Actual) |  |  | September 30, 2022 |  |  | September 30, 2023 (Actual) |  |  | September 30, 2022 |
Total revenue |  | $ | 9,271 |  |  | $ | 9,361 |  |  | $ | 28,118 |  |  | $ | 26,982 |
Net income |  |  | 1,483 |  |  |  | 4,246 |  |  |  | 6,120 |  |  |  | 10,793 |
Basic earnings per share |  | $ | 0.11 |  |  | $ | 0.31 |  |  | $ | 0.45 |  |  | $ | 0.79 |
Basic weighted average shares outstanding |  |  | 13,751 |  |  |  | 13,610 |  |  |  | 13,709 |  |  |  | 13,598 |
Diluted earnings per share |  | $ | 0.11 |  |  | $ | 0.31 |  |  | $ | 0.45 |  |  | $ | 0.79 |
Diluted weighted average shares outstanding |  |  | 13,820 |  |  |  | 13,677 |  |  |  | 13,777 |  |  |  | 13,688 |
These calculations reflect increased amortization expense, increased SG&A expense, the elimination of losses associated with the transaction, and the consequential tax effects that would have resulted had the acquisition closed on January 1, 2021. In connection with the Northbound acquisition, we entered into an amortizing term loan from the seller for $1.5 million scheduled to mature on March 1, 2025 that bears interest at 4.0%. The term loan is unsecured and subordinated to our senior instruments (Bank of America revolving credit agreement). The Northbound term loan is payable in 36 monthly installments beginning on April 1, 2022 until March 1, 2025. We may prepay the Northbound term loan in whole or in part at any time or from time to time without penalty or premium by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Immediately after the acquisition, we sold certain assets related to the operations of the acquired locations. In connection with their purchase, the buyers executed franchise agreements with us and became franchisees. The aggregate sale price for the operating assets was $6.4 million. In conjunction with the sale of assets acquired in this transaction, we recognized a loss of approximately $1.7 million which is reflected on the line item, "Other miscellaneous income (expense)," in our consolidated statement of income for the three months ended March 31, 2022. The franchisee that purchased these operating assets is a related party. For more information. See Note 3 - Related Party Transactions regarding the Worlds Franchisees. Subsequently, the fair value of assets acquired were adjusted in conjunction with a third-party valuation and the net working capital reconciliation. These adjustments included a decrease in the loss of approximately $389 thousand, which is reflected on the line item, "Other miscellaneous income (expense)," in our consolidated statement of income for the nine months ended September 30, 2022. MRI On December 12, 2022, we completed our acquisition of certain assets of MRI in accordance with the terms of an Asset Purchase Agreement dated November 16, 2022, for approximately $13.3 million, inclusive of $60 thousand of contingent consideration and net working capital of approximately $223 thousand. MRI provides executive placement as well as commercial staffing. The acquisition of MRI will help expedite growth into a new staffing vertical, expand our national footprint, and grow our franchise base. The following table summarizes the estimated fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date:
Cash consideration |  | $ | 13,000 |
Contingent consideration |  |  | 60 |
Net working capital payable |  |  | 223 |
Total consideration |  | $ | 13,283 |
Customer relationships |  | $ | 5,640 |
Trade name |  |  | 2,180 |
Royalty receivable |  |  | 575 |
Current assets |  |  | 581 |
Goodwill |  |  | 4,795 |
Current liabilities assumed |  |  | (488 | )
Purchase price allocation |  | $ | 13,283 |
Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new customers, and future cash flows after the acquisition of MRI. Goodwill is deductible for income tax purposes. The following table presents unaudited pro forma information (in thousands, except per share data) assuming (a) the acquisition of MRI had occurred on January 1, 2021, (b) all of MRI's operations had been converted to franchises on such date, and (c) none of the other acquisitions discussed in this Note 2 had occurred. The unaudited pro forma information is not necessarily indicative of the results of operations that would have been achieved if the acquisition had in fact taken place on that date. Franchise royalties attributable to the acquiree of approximately $1.6 million and approximately$5.8 million are included in our consolidated statement of income for the three and nine months ended September 30, 2023, respectively.
|  | Three months ended |  |  | Nine months ended |
|  | September 30, 2023 (Actual) |  |  | September 30, 2022 |  |  | September 30, 2023 (Actual) |  |  | September 30, 2022 |
Total revenue |  | $ | 9,271 |  |  | $ | 10,655 |  |  | $ | 28,118 |  |  | $ | 29,548 |
Net income |  |  | 1,483 |  |  |  | 5,674 |  |  |  | 6,120 |  |  |  | 13,446 |
Basic earnings per share |  | $ | 0.11 |  |  | $ | 0.42 |  |  | $ | 0.45 |  |  | $ | 0.99 |
Basic weighted average shares outstanding |  |  | 13,751 |  |  |  | 13,610 |  |  |  | 13,709 |  |  |  | 13,598 |
Diluted earnings per share |  | $ | 0.11 |  |  | $ | 0.41 |  |  | $ | 0.45 |  |  | $ | 0.98 |
Diluted weighted average shares outstanding |  |  | 13,820 |  |  |  | 13,677 |  |  |  | 13,777 |  |  |  | 13,688 |

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